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How to be married and keep separate accounts

Posted: 6:05 PM, Mar 16, 2016

Updated:2016-03-16 18:05:11-04

By:
Credit.com

Mark Wilson

“Sign here. I love you, but you can’t have my money.”

Are those not the most romantic words you’ve ever heard? Prenuptial agreements are one way to ensure that your money stays separate while you are married, but can definitely be a killjoy when it comes to the relationship.

So what if you really want to keep your money separate but have decided that the prenuptial is not worth the headache, expense or aggravation? Are there ways to keep your money separate while you are married? The short answer is yes … most of the time. Certain assets can absolutely be protected. Others … not so much.

Drawing (State) Lines

The first level of the analysis is to find out if you live in one of the nine community property states. They are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, all property is presumed to be “community” property (of the property of both parties) and the burden is then on the one who wants to prove otherwise to the court. That this can often be a difficult task goes without saying.

The principle behind this and all marital property law (as well as alimony law) goes back more than 100 years, and is that both spouses have a duty to support each other in all ways; morally, physically, financially.

The vast majority of the states are equitable distribution states. In those states, the courts will take a look at everything either of the parties has and make three piles: his, hers and theirs (with gay marriage now legal, the piles may be his, his and theirs or hers, hers and theirs, but you get the idea). So the his and her piles would contain assets, such as inheritances, gifts that were meant for just that one spouse and any assets that the party earned prior to the marriage that were all kept separate during it.

The caveat to the above though — and this is a big one — is that, generally, anything that either party actually “earns” during the marriage (including wages, business income
for a business where one person works, 401K contributions, stock options — anything received for actual work), is going to be marital. Unless you have a prenuptial or postnuptial agreement, there is no keeping this element of your assets separate.

Furthermore, think of those “earnings” like a teaspoon of baking soda you add to your cake mix and stir up – once it’s in there, that’s it. You can’t decide to take the baking soda back out.

With those concepts in mind, here are a few ways to keep your assets separate.

1. Keep Your Inherited or Premarital Assets Separate

The word “commingling” is often synonymous with “lottery winnings” to one spouse; and “gambling losses” to the other. If you have an account that has funds in it that you either owned prior to the marriage or received during the marriage as inheritance or a non-marital gift that you mixed in to your earnings or joint funds from another bank account – then poof! The entire account becomes marital.

Why?

Because the courts consider money to be “fungible” meaning that once that marital dollar goes in, you can’t tell which dollar is coming back out. (Remember the baking soda.) To prevent problems and/or confusion in case of divorce, you can keep your premarital/inherited assets separate during marriage.

2. Don’t Put Your Spouse’s Name on the Title of Your Real Estate or Bank Accounts

Many people own a home prior to getting married. Oftentimes, especially if that home is where the married couple lives, the homeowner decides to throw the other person’s name onto the deed or the title of your financial accounts. While you could argue down the road, that you only did if for estate planning purposes, meaning that the spouse would be able to get the house and the money if you died first, that argument almost always fails in court.

To be certain, you don’t have to have this argument, just don’t put the other person’s name on the deed or your bank accounts – unless you are completely prepared to hand half of their value over to the other spouse in a divorce
.

3. Be Careful About What You Use Your Earnings For

It is easy enough to decide to keep your own property in your own name and not add someone’s name to a deed or to a financial account. The rub comes when it maintaining that premarital property. This is where one or both of the spouses use their paychecks or other joint funds to pay down the debt on that property, or to make renovations or improvements to that property.

Now the court is going to be faced with trying to carve out which part of the value of the property might be marital and what part of the value has remained non-marital – a tedious and tortuous task. To keep it all clean, just use your funds from your premarital or inherited account to maintain your non-marital property, too.

By following these few simple steps, you should be able to keep the property you owned prior to the marriage, or inherited during the marriage as your own separate asset, without having to spend lots of money to litigate what was yours in the first place. You and your spouse can enjoy the fruits of your joint labor, and what the two of you built during the marriage.